Prepaint Awaits a Construction Rebound
Coil coaters hope to expand prepainted metals into other markets, but the still-wobbly construction market remains the primary end use for the material.
By Dan Markham, Senior Editor
Demand for prepainted metal, including steel and aluminum, has lagged in recent years as a result of the slowdown in building and construction, the destination for two-thirds of the material. The outlook for 2013 is mildly better, say the experts, though a return to the boom times of the past remains somewhere in the future.
“We’ll probably have a year that’s similar to this past one. Not a whole lot of positive change,” says Jim Dockey, director of sales and marketing for Centria, Moon Township, Pa. “We have some cautious optimism that it will get better by the end of the year, but we said that last year and it didn’t happen.”
Through the first six months of 2012, where the data is available, the market for prepainted coil was fairly flat, reports Jeff Widenor, vice president of the National Coil Coating Association, Cleveland. The industry made mild gains in the construction market this year, but they were offset by weaker results in the consumer markets.
His prognosis for this year is for modest improvement. “For 2013, it’s kind of a mixed bag, depending on what sector you’re talking about,” says Widenor, who also serves as vice president of marketing and planning for Precoat Metals, St. Louis.
The commercial construction market has been way down in recent years, off as much as 55 percent from its peak, says Don Switzer, prepainted product manager for Steel Dynamics Inc., Fort Wayne, Ind. It has climbed from its trough, and will continue to make progress in 2013, though not to high levels, he predicts.
Prepainted aluminum composite panels have grabbed substantial market share in the nonresidential building market, says Jeff Alexander, president of the NCCA. Unfortunately, public sector building construction, including schools and hospitals, remains sluggish as municipalities having little money for major projects.
One construction sector that has propped up demand for prepainted materials is the post-frame market. Post-frame construction uses engineered framing systems with widely spaced supporting columns to produce versatile, inexpensive low-rise commercial buildings. Such structures are particularly popular in agricultural settings. But even that market is losing traction, Widenor says, and is forecast to dip 5 percent this year. “There were some very attractive tax incentives in 2011, which were reduced in 2012 and will be reduced further in 2013. There’s been a pretty clear impact on farm spending as a result of that.”
Prepaint suppliers point to some favorable signs for their business, including a recent run of positive reports from the American Institute of Architects’ Billings Index. The index recently hit 52.8, with all regions of the country reporting growth for the first time since the recession. A 50-plus reading generally indicates growth in the nonresidential construction sector, though typically there’s a 9-12 month lag between when the index increases and the industry sees improved demand.
Moreover, the recent past has left Widenor somewhat cautious. “We’ve seen false positives before, where it’s bounced above 50 and below 50. I’d like to see something stable, like a six-month trend that we can really sink our teeth into.”
Despite the concerns, he projects nonresidential construction spending to increase 4-5 percent in 2013.
The residential side is also blooming, with promising housing start figures reported in the fourth quarter. Unfortunately for metal suppliers, new housing construction is not a major source of demand for prepainted metal.
The prepaint industry, led by the Metal Roofing Alliance, Belfair, Wash., targets more of its efforts at the reroofing market, a relatively stable business involving 500,000-700,000 homes annually. That’s where metal roofing suppliers have seen their most success, winning converts from conventional asphalt shingles. Metal roofing’s market share topped 10 percent before slipping a bit in the last two years.
To Bill Hippard, president of the MRA, the market share dip is attributable to a declining budget for advertising and PR work. The industry had been investing upwards of $3 million annually to sell homeowners on the benefits of metal roofs, though that spending was cut in half in the past few years.
That assessment was supported by a recent targeted marketing campaign conducted by the MRA. The association decided to spend four times its typical marketing budget in four cities: Fort Smith, Ark., and Eau Claire, Wis., one year, followed by Birmingham, Ala., and Harrisburg, Pa., the following year. The campaigns had the desired effect, with metal roof purchases growing to the targeted 20 percent market share in those areas.
“People just had to be educated about the benefits of metal roofing,” says Hippard, who also serves as vice president of sales at Precoat Metals. “This was our proof of concept, that if we had the right program, pointed at the right people, we could make it happen.”
And the metals industry has taken notice. “Metal roofing continues to be the shining star as it relates to prepainted steel,” says SDI’s Switzer.
Metal roofing has had less success infiltrating the new-home market, capturing only a 5 percent share. Installing a metal roof can cost up to twice as much as conventional asphalt shingles. The homebuilder’s primary goal is to keep his costs down. While a metal roof will more than pay for itself in the long run, it’s easier to sell the life-cycle benefits the homeowner who will live there for many years.
Still, MRA believes that if it can continue to grow its share of the reroofing market, that home buyers will start to push for the product at the time of the home’s construction. Boosting that cause are recent technical and cosmetic developments that make metal roofing materials easier to install and more attractive. Metal roofs are now available to resemble any and all traditional roofing materials.
“Not too many years ago, everything was a vertical seam roof like you’d see in mountain and snow load areas. It was very attractive and very colorful, but maybe it didn’t fit into the neighborhood in suburbia,” Hippard says. “Now, for every type of roofing product there is, there are a number of manufacturers who make a metal substitute that looks just like it. In some cases, you have to use a magnet to make sure it’s not slate or cedar shake.”
One wildcard for building and construction demand in 2013 will be reconstruction in the Northeast as the coastal areas work to recover from Hurricane Sandy. Groups like the Metal Roofing Alliance and the Glenview, Ill.-based Metal Construction Association will promote the virtues of metal buildings, which could stand up better to the next storm.
“We want to be very sensitive and discreet, but when it’s time for rebuilding we have a number of different documents that talk about metal roofing from a wind-resistant standpoint and durability standpoint,” Hippard says. The trade groups can make a similar case for prepainted metal materials used in other types of building construction.
Along those lines, one of Centria’s bigger markets is signage. Dockey expects to see substantial growth in his company’s Northeast business to replace signs lost during the storm.
Beyond construction, other markets for prepaint include HVAC and appliance, which were down 1.4 percent in 2012 but are expected to grow by 4 percent in 2013 along with the residential construction market. Transportation is also a destination for painted coils, though not in the numbers the industry would like.
“The big market for prepaint continues to be automotive,” says Switzer. “That’s been a challenging sell for our industry.”
Making greater headway in segments such as transportation, or grabbing a piece of previously untapped markets, is one of the primary objectives of NCCA. The organization has also shifted some of its efforts from the prepainting vs. postpainting debate to positioning prepaint as an attractive alternative to materials such as wood, concrete and plastic, says Widenor.
To help achieve those goals, the organization has hired its first technical director, Al Dunlap, a retired executive from Chicago paint supplier Valspar. Dunlap will work as a liaison between the NCCA and other trade groups, and also examine what new markets may be exploited.
One area that coil coating executives point to as a prime selling point is the material’s environmental attributes, from the natural recyclability of its steel and aluminum to the cleaner painting process that releases fewer contaminants into the air. But, Dunlap says, the industry needs to do a better job of putting that on paper. “Most people in our industry believe it, but we haven’t really done the documentation. That’s part of what I’m going to gather. I believe the European Coil Coating Association is a little ahead of us in that regard, and we can learn from them and move quicker.” Europe also has led in the development of chrome- and lead-free coatings, which eventually may be mandated in the U.S.
Metal Coaters, one of the largest toll processing coil coaters in the U.S., already has begun offering pretreatments compliant with Restriction of Hazardous Substances standards that were developed abroad, says Megan Haun, marketing manager for the Houston-based company, emphasizing prepaint’s environmental attributes.
Like other links in the supply chain, the industry has experienced a fair amount of consolidation in recent years. The most noteworthy was Precoat Metals’ 2011 acquisition of Indianapolis-based Roll Coater. Widenor says the integration of the two large companies, which had more than a dozen locations between them, has taken place quicker than anticipated.
Earlier last year, Centria signed an alliance with Toronto-based Metal Koting to represent some of their technology, particularly for printing and laminating in the United States. “Instead of investing in our own lines, we wanted to work with them and capitalize on what they’ve already worked hard to do,” Dockey says.
Also in 2012, Metal Coaters opened a new facility in Middletown, Ohio, to reduce freight costs. The company now operates four locations.
Additionally, the industry anticipates three new coil coating lines becoming operational in 2013. “However, the current economic environment does not support this kind of capacity, so there are sure to be more changes (to the supply base),” says Alexander at NCCA.
On top of that, Dockey says, the U.S. has seen a sizable uptick in the amount of painted product being imported. The phenomenon is not new, though it usually takes place in markets that are more robust.
“The equivalent of two or three high-speed coating lines worth of capacity is being imported into the U.S. That’s 600,000-700,000 tons of prepaint coming in from offshore, at market prices that raise questions about whether it’s being fairly traded,” he says. “There’s a lot of sentiment to do what we can to understand these imports and figure out how as an industry we should react.”